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Cashless in Europe

Dec 12, 2007—also known as RFID or cashless—payment systems may not be the talk of the town in London, but they are certainly drawing a good deal of interest. London is the first European city where contactless payments for convenience items have been made available. Back in September, the largest U.K. banks partnered with MasterCard and Visa—the largest credit and debit card companies in the world—to promote the benefits to consumers and retailers alike.

At present, that effort is concentrated in London's Docklands business district, but all concerned stress this is the first phase of a U.K.-wide rollout. And all the involved parties—the credit card companies, European banks and contactless-equipment vendors—are watching the trial closely to see whether the system is ripe for other European cities.

The technology offers benefits to consumers in terms of convenience, and to retailers through faster transactions and increased per-transaction spending. But it is the banks and their card-issuer partners that could see the greatest benefits, because contactless payments promise to eat into traditionally cash-only purchases and increase the number of transactions liable for transaction fees.

Contactless payments will be good only for purchases of £10 ($20) or less, but more than 75 percent of cash payments in the United Kingdom are under £10. A typical target for contactless payments would be a morning coffee, a lunchtime sandwich or an evening paper.

London was chosen as a test market, in part, because contactless ticketing has been an increasingly popular payment option on the city's trains, tubes and buses. Since 2003, more than 14 million Oyster contactless cards, which can hold prepaid amounts as well as season tickets, have been issued. But that familiarity and trust with contactless ticketing may not carry over to cashless payments for convenience items, because while the technology is the same, the two payment methods will remain totally separate.

That's not the case in parts of Asia—most notably in Hong Kong, Japan, South Korea and Taiwan—where contactless payment systems have taken root. Commuters in Hong Kong and Tokyo can use their RFID transit cards to pay for items in retail stores and vending machines. But London commuters will not be able to use their Oyster cards to pay for convenience items, which could have an impact on acceptance.

Contactless proponents also need to win over retailers so they'll invest in payment terminals that will accept contactless payments. But some retailers are likely to wait to see if there's a significant switch in customer behavior from cash to contactless.

Without the ready market of Oyster cardholders to drive payments from the get-go, the banks and card associations supporting the trial are faced with a significant task in the coming year: They have to drum up demand from both consumers and retailers, when neither party is likely to embrace the technology ahead of the other. How well and how quickly they manage to do this will certainly impact the interest in contactless over the channel.

Jonathan Collins, former RFID journal European editor, is now a principal analyst with ABI Research. Based in London, his focus is on contactless commerce and RFID.

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